Kremlin seeks to halt fall of rouble and rules out devaluation

The Kremlin has sought to check the stubborn fall of the rouble over the past three days, making clear that it does not intend to directly manipulate the currency in order to stimulate the flagging Russian economy.

"Talk about any sharp fluctuations, a strong devaluation is not appropriate," said Dmitry Peskov, spokesman for Russia's President Vladimir Putin on Wednesday.

Mr Peskov's intervention follows ambiguous remarks by the minister of finance Anton Siluanov, who said on Monday that his ministry will start buying foreign currency from the market in August to replenish state funds, weakening the rouble.

"A small weakening in the rouble's exchange rate can play a positive role for federal budget revenue and the economy as a whole," Mr Siluanov told Bloomberg News agency.

The remarks seemed to signal to currency traders that Mr Siluanov had just enunciated a long-awaited plan by the government to stimulate economic demand by lowering exchange rates. Ever since disappointing first-quarter economic growth, which slumped to 1.6 per cent compared to a year before, Russian government circles have been discussing the need to stimulate the economy using some combination of exchange rates, interest rates, fiscal policy, and rainy day oil funds.

When Mr Siluanov's comments became public, the rouble began tumbling at its fastest rate in two months. By Wednesday it had fallen a little over 2 per cent against a euro dollar basket used by the central bank as a currency benchmark.

On Tuesday Deputy Prime Minsiter Igor Shuvalov weighed in, saying that Mr Siluanov's comments had been taken out of context and "had nothing to do with devaluation". But the rouble continued to tumble.

On Wednesday Mr Peskov explained that Mr Siluanov had been only trying to make an observation about economic theory, and not advocating a weaker rouble.

"These are simple tenets of economics: the weakening of a local currency stimulates the optimisation of activities of export-oriented enterprises, which are in abundance in Russia. However, we cannot talk about any drastic hikes or devaluations," Mr Peskov said.

The rouble's slide has been exacerbated by a wider sell-off in emerging market currencies this month, triggered by concerns over the effect on global markets of any pull back in monetary easing from the US Federal Reserve.

Antonio Spilimbergo, head of the International Monetary Fund mission which came to Russia this week, said that Mr Siluanov's comments had probably been taken out of context, and that he was not advocating devaluation. "The government has not adopted devaluation as a means to stimulate growth," Mr Spilimbergo said.

He added, however, that the Russian government is currently exploring other methods to stimulate the economy, such as investing funds from the National Welfare Fund, composed of surplus oil export revenues, to fund infrastructure projects. Currently the fund is valued at $87bn.

However, the IMF is advising Russia to remain committed to inflation fighting, Mr Spilimbergo added. Stimulating demand via fiscal or monetary means, he said, was likely to be counterproductive in the short term because the economy was near capacity.

Additional reporting by Alice Ross in London

© The Financial Times Limited 2013. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation